Rachel Reeves is facing a furious backlash over plans for a £2 billion raid on pension perks.

Critics warn that any such move would “punish prudence” and hit millions of workers’ take-home pay.

The crackdown, expected to be confirmed in the Budget later this month, would see new limits on salary sacrifice pension schemes – arrangements allowing employees to boost their retirement savings before tax is deducted.

Currently, there is no cap on how much workers can put into such schemes before National Insurance applies.

Under Reeves’s plans, contributions above £2,000 a year would be subject to the usual NI rates – 8% on earnings below £50,270 and 2% above that. Employers would also lose part of their 15% NI exemption on these payments.

The Treasury expects the move to raise £2 billion, helping fill what officials say is a £20–30 billion gap in the public finances caused by weaker productivity forecasts. But pensions experts and advisers have condemned the plan as a short-sighted “tax on working people”.

The plans – first reported by The Times – were among options set out in an HMRC consultation earlier this year. The Revenue said the £2,000 threshold was “viewed most favourably” by employers, compared with more sweeping alternatives such as removing all National Insurance exemptions.

However, analysis by accountancy firm RSM found that a worker on £125,000 who saves £25,000 of their salary would pay £460 more in NICs each year – while their employer’s costs would rise by £3,450.

Former Pensions Minister Steve Webb, now a partner at LCP, warned the measure would hit both firms and savers.

“Salary sacrifice is used as a way of reducing the cost to employers of providing decent pensions. Capping it will further increase employer costs and may well result in employers reconsidering the generosity of their pension offer,” he said.

“At a time when millions are not saving enough, this is a backward step.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said: “A tax raid on salary sacrifice is a tax on working people, plain and simple. These schemes aren’t loopholes, they’re lifelines for millions who sensibly save for their future.

“Cutting back on them would hit ordinary workers the hardest, reducing take-home pay and discouraging pension saving at a time when the government should be doing the opposite. Instead of punishing prudence, ministers should be rewarding it because a country that taxes saving is a country that forgets how to grow.”

Rob Mansfield, Independent Financial Adviser at Rootes Wealth Management in Tonbridge, said the government was “shooting itself in the foot”.

He added: “Salary sacrifice is a great tool for the companies that allow it. It’s particularly convenient for higher-rate taxpayers as full tax relief is given automatically and not enough people claim tax relief through their self-assessments.

“One of the Budget rumours is that National Insurance may be cut, which would erode the benefits naturally. It’s in the government’s interest for us all to save properly for retirement, so it’s odd that every Budget they damage confidence by faffing around with pensions.”

Scott Gallacher, Director at Leicester-based Rowley Turton, said people taking responsibility for their future were being penalised.

He said: “A crackdown on salary sacrifice pension schemes would be deeply disappointing and, frankly, counterproductive. Time and again, governments talk about concerns over retirement poverty and Britain’s need to save more for the future.

“Yet short-term Treasury thinking so often overrides this laudable aim. Instead of encouraging long-term saving and financial resilience, we see a steady erosion of incentives – from limits on tax-free cash to cuts to Capital Gains and dividend allowances.

“Now, even salary sacrifice – a simple, efficient way for ordinary working people to save for retirement – is under threat. If the government is serious about tackling the looming pensions crisis, it needs to stop penalising those who take responsibility for their own financial future.”